A project's opportunity cost of capital is:
A) the return that shareholders could expect to earn by investing in the financial markets.
B) the return earned by investing in the project.
C) equal to the average return on all company projects.
D) designed to be less than the project's IRR.

Question

Quizplus · Accepted Answer

The opportunity cost of capital is the return that shareholders could expect to earn by investing in the financial markets. It represents the return that could be earned from an alternative investment with the same risk. It is used as a benchmark for evaluating the potential return of a project, and is important in determining whether or not to invest in a particular project. Therefore, option A is the correct answer.

A Project's Opportunity Cost of Capital Is